Crash of 1557-1560

French finances were thoroughly unstable prior to 1500, thanks in part to spectacular periodic debasements of the currency. In 1303 alone, France debased the silver currency of its coins by more than 50 percent. At times, French revenues from currency manipulation exceeded that from all other sources.

The French monarchy began to run up debts starting in 1522 with Francis I. Eventually, as a result of both extremely opaque financial accounting and continuing dependence on short-term finance, France found itself quite vulnerable when Philip II of Spain upset financial markets with his decision to default in 1557. Just as in modern financial markets, where one country's default can spread contagiously to other countries, the French king, Henry II, soon found himself unable to roll over short-term debt. Henry's efforts to reassure lenders that he had no intention to follow Philip's example by defaulting helped for a while, but by 1558 France had also been forced to default. The crash of 1557-1560 was an event of international scope, radiating throughout Europe.

France's immediate problem in 1558 may have been the Spanish default, but its deeper problem was its failure to develop a less opaque system of finances. For example, Francis I systematically sold public offices, in effect giving away future tax revenues in exchange for upfront payments. Corruption was rampant. As a result of the center's loss of control over tax revenue, France found itself constantly rocked by defaults.[1]